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After going down steadily after reaching a peak of $147 per barrel in July, oil prices are threatening to rise again. World oil prices have already gone down to around $90 per barrel when news of the bankruptcy of Lehman Brothers, the purchase of Merrill Lynch, and the bail out of AIG broke out. This caused the volatility of oil prices once again. The announcement of Bush's $700 billion bailout plan triggered a reduction then an increase in oil prices.
Oil contracts for October delivery, in electronic trading on the New York Mercantile Exchange in Singapore, surged to $130 a barrel before settling down to $120.92 on September 22. Contracts for November delivery of oil, however, went down to $107.41 a barrel before settling at $109.37 during trading last September 23. Were there expectations of a storm, an attack on oil wells in Nigeria, or a war on Iran? Is a surge in demand in China or the US being expected? No.
An analyst said that investors are looking for a “safe haven” in oil after the series of bankruptcies indicating the extent of the financial crisis. It was also said that uncertainties on the effects of the $700 billion bailout plan on the US economy - worsening the US government deficit, fall in the value of the dollar, among others - also triggered investments in oil futures. If this is not a manifestation of the effects of speculative investments in the oil futures market, then what is?
Whatever happens with oil speculation, the big oil companies are always at the winning end. As oil prices go up, so do the profits of oil companies. Whenever oil prices go way beyond the cost of production plus the average rate of profit because of speculation, oil companies are able to gobble up super profits. It is estimated that with the prevailing $115 per barrel price of oil in May 2008, $50 to $60 was due to speculation. Thus, by selling at $115 per barrel, oil companies earned additional profits of from 77 to 100 percent.
The big three local oil companies - Caltex, Shell and Petron - are mere subsidiaries of the oil giants. They do not have to source their supply of oil from the spot and futures markets. It is then a wonder why they say that they sacrificed their profits - and thus have to claim for under-recoveries - with the spike in world crude prices during the first half of the year when they increased pump prices every week, and their mother companies need not base their pass-on price to their local subsidiaries on the speculation-boosted price in the world market.
The greed of oil companies has been fueled by the Downstream Oil Industry Deregulation Act, which allows them to increase prices at will when world crude prices go up and delay the reduction of pump prices when world prices go down. The Arroyo government could not be expected to take the people's side; it profits with the spike in oil prices with the value-added tax on petroleum products. Only the Filipino people could force its hand to do so. - Benjie Oliveros, Bulatlat.com
